I've been speaking to many of our customers in the last few months and a topic that keeps coming up is how to increase bookings while maintaining a healthy margin. As an operator, you have to get enough bookings to cover the cost of your guides, your permits, your boats, your offices and more.
The tendency to rely solely on 3rd party channels to bring in bookings is affecting revenues due to high commission rates charged by OTAs like TripAdvisor Experiences and Get Your Guide. However, paying a 25% commission to get 100% occupancy for a boat tour isn't always a bad thing.
So, tour operators and activity providers are faced time and time again with questions like how to improve commission efficiency or how to increase profit per tour or how to shorten my low seasons or how to get more bookings through the right channels so that I'm getting the right customer.
The short answer is demand forecasting. It can provide useful insights into your destination, your business, and your customers, ultimately improving the way you run your tour or activity business.
What is demand forecasting?
Demand forecasting uses past data to predict the future demand for your tours. It is commonly practised in the hospitality industry and to a large extent is already practiced by many operators in a less formal manner.
If I were to ask when do your high and low seasons occur, I'm sure you'd already be able to give me a solid answer. If I were to ask when are your most and least popular days and times for tours, you'd probably be able to answer that as well.
The only difference between your instinctive answer and demand forecasting is the use of data to back up your claims. On top of that, you also analyse external factors that can contribute to higher or lower demand.
Knowing when demand is high and low allows tour and activity operators to increase or decrease promotions, increase or decrease prices and work with the right sales channels to target the right audiences at the right time.
We'll start by calculating your occupancy rates.
How to calculate occupancy rates for tours and activities?
Borrowing a term and concept used in the hospitality industry, calculate your occupancy rate for each tour based on departure times for every day of the week for the past 12 months. If this sounds too daunting, which frankly it can be, let's start with your top 3 most profitable tours.
The whole point of this exercise is to get a monthly overview of your demand (i.e. bookings) as well as a granular exploration of demand based on time of day and day of the week.
This is where a booking system with really good reporting tools can help. Relying on a logbook to keep track of your tours can be a great short-term solution but as your operations grow, a booking system with automated reports can make life a lot easier. If you already have a booking system, it is unlikely that it can provide such in-depth reports so a little bit of Excel wizardry might be in order.
To start, export a report with the following details:
- Trip name
- Trip date
- Trip day
- Departure times
- Number of bookings per tour
- Maximum capacity per tour
For TrekkSoft users, export your Turnover report to get started. Then, add columns for the day of the week and the maximum capacity per tour.
Next, calculate the occupancy rate for every departure time by dividing the number of bookings by the maximum capacity per departure.
Then, use your data to plot graphs that show occupancy rates for every day of the month, occupancy rates for day or the week and finally your occupancy rate based on the departure times. You can easily create these graphs with Google Sheets.
Other useful metrics you should calculate for your tours:
- Maximum occupancy rate
- Lowest occupancy rate
- Days with the lowest/highest occupancy
- Departure times with the lowest/highest occupancy
Consider external demand factors
Apart from forecasting demand based on your own data, there are a number of external factors that can affect demand for your tour and activities.
The most obvious factor is seasonality. Every destination is bound to have a high season, a low season and shoulder seasons. The challenge is to find ways to reduce the slower periods or create products that work during those seasons.
Don't forget to also take into account key events in your region. Take Interlaken for example, where TrekkSoft first started. In December, we have Ice Magic where an ice skating rink and Christmas market is built right in the middle of town. Visitors can enjoy ice skating against a beautiful mountain backdrop, or enjoy a gluhwein or two. Then over the New Year there's the region's famous open-air concert on the 1st of January followed by the Harder-Potschete, a local parade that excites and terrifies the crowd in equal measure.
These events are bound to attract folks from all over the region, the country and even internationally. Foot traffic to the region will increase. How can tour operators capitalise on these opportunities?
We also have to consider your destination's reputation and brand when forecasting demand for the future. If your destination is branding itself as a luxurious island getaway, a budget trekking tour might not be the best product for visitors to the region. How you market and brand your products need to be aligned with your destinations' overall brand.
Implications to your business model
Understanding your demand and the factors that increase or decrease demand can have a big impact on how you run your business. It can help you charge the right price to the right customer at the right time.
This idea is also known as yield management.
To determine the right price, you should consider the following factors:
- Which periods do you experience high occupancy rates?
- What are your most profitable products? Do not confuse this with your most popular products.
- What was the increase in price you applied in the previous year? If you're doing this for the first time, have a look at how much your competitors are pricing up in the high seasons. Look them up on Google or on OTAs to see how much they'll be selling their services for the upcoming season.
During busier periods and busier departure times, you should price your tours higher to maximise revenues gained. During quieter periods, we encourage operators to find other ways to promote or add value to their tours to continue to attract bookings.
To find the right customer, you should consider the following factors:
- Write down as many details as you can about your current customer segments. What drives their booking behaviour? Are they price sensitive? Do they book ahead of time or just before time of departure? How much revenue does this customer segment contribute? Do you want more of this type of customer or not?
- Based on historical data, where are these customers likely to find out about you and book a tour with you? If they tend to book through direct channels, how can you optimise the direct booking experience? If they book commonly book through OTAs, does this customer cost more to acquire due to the added commissions? How can you increase direct revenues from this customer?
In a webinar earlier this year, Antony Lias, COO at SANDEMANs NEW Europe, highlighted that customers from different sales have different buying behaviours. Amrita Makkar, Revenue Manager at the Standard Hotels in London, mentioned in her webinar with us that customers booking from OTAs tend to be more price sensitive compared to those who book direct.
They both strongly advocate for direct sales where possible and use OTAs strategically.
To deliver your offer at the right time, go back to your demand forecast and occupancy rates. You should:
- Increase prices during busier days and departure times to spread demand.
- Prepare for quieter periods by working with different sales channels to reach a larger audience.
- Increase direct revenues by upselling customers at the time of booking or just before departure.
- Consider last-minutes offers, whether its increasing or decreasing tour prices to stimulate demand.
Key Takeaway 1: Capitalised on busy departure times! Price your tours higher to maximise revenues gained. During quieter periods, find alternative ways to promote or add value to your tours to maintain a steady flow of bookings.
Key Takeaway 2: Always prioritise your direct booking channels such as your website. Invest in your website so that it attracts the right customer and encourages them to book on your website instead of through an OTA. OTAs should be used to reach customers you cannot reach yourself.
To find the right customer segment for you, read a this post.
Key Takeaway 3: Bookings for busy periods should be made on direct channels with the highest margin. OTAs and other 3rd party channels should be used to promote tours during quieter periods.
Demand forecasting is one aspect of revenue management that can have a huge impact on your tour business. Keeping a good record of your bookings is key to successfully collecting all the data you need to make informed business decisions.
What to learn about revenue management from industry experts?